Main aim of pension reforms was 'to boost tax receipts' rather than give savers freedom - former government adviser claims

Bringing forward tax revenues is the 'primary driver' behind the Government's plan to give savers unrestricted access to their pension pots, a former senior adviser has claimed.

Former government actuary Chris Daykin has expressed concern that many pensioners will be left worse off by withdrawing their whole pensions when the new freedom rules are introduced from next April.

People with defined contribution pensions will be allowed to withdraw as much as they want from their pots, provided they are over 55, and only pay marginal tax on it.

Revenue boost: The Government is expected to rake in an extra £1.2billion in income tax on pensions by 2018/19.

But in taking their whole pot many
savers would hit the 40 or even 45 per cent tax rates, rather than just
paying 20 per cent if they were to take a small income every year. Many pensioners' total income will be under the £10,000 personal allowance that can be earned before any tax is paid.

After the changes were announced in the March Budget, the Treasury said the change would 'front-load' the Government's tax revenues from pension savings, bringing in an extra £1.2billion revenue-a-year by 2018/19.

And Mr Daykin told the Financial Times: 'I believe a primary driver for the Treasury was a desire to bring forward tax revenues.

'The assumption must be that many retirees, given the chance, will take their money out as quickly as possible...so, presumably, the Treasury are assuming cash is taken quickly, if not immediately, and that it is mostly going to be taxed at standard rates.'

He added: 'There is no doubt a risk that many people may spend their retirement monies too quickly and end up on a very low income.

'A better balance between welfare considerations and freedom considerations would lead to a requirement to annuitise enough to provide an underpin of lifetime income, with freedom to do what you like with the rest.'

Mr Daykin's concerns about how people will use the new rules does not reflect research into people's intentions come next April, with several surveys finding that only a small minority of savers plan on withdrawing their entire pension pots.

The Treasury also rejected 'unfounded criticism' from Mr Daykin that it had not made public the modelling behind its forecasts that predict the increase in tax receipts from April next year.

A spokesman told the FT: 'Our radical pension reforms are about giving people more choice when they retire, and have been almost universally welcomed by consumer groups and pensions experts.

'With the creation of the new independent Office for Budget Responsibility the costing of Budget measures is now subject to unprecedented transparency and independent scrutiny, and the details behind the costings were certified by the Office of Budget Responsibility and published alongside the Budget.'